Lior Lamesh on Custody of crypto assets for banks and financial institutions
What We Discuss With Lior Lamesh
With more and more companies looking to invest in bitcoin and other cryptocurrencies as an alternative to traditional investments like bonds, stocks and so forth, an important consideration for these companies involves the risks and controls in place for owning such assets.
One of these significant risks lies in custody. Will the company keep custody of the assets itself, or will it rely on third-party providers?
Custody of cryptocurrencies requires a new kind of infrastructure with unique considerations for their storage and security. And connectivity to the internet is the intersection where solutions for custody diverge.
In this episode, we discuss;
- The differences between public key and private key in cryptography and their relative importance to the investor.
- The options available for a bank to offer custody services to their clients.
- The limitations for banks to develop a custody infrastructure in house.
- The differences between hot wallets and cold wallets.
- The steps for banks and financial institutions to have a self managed custody solution.
- Options available to clients while assets are in cold custody (eg. staking, trading, tokenization)
- And much more…
Shownotes
Overview of crypto asset custody
- Lior shares the story of how GK8 came to life, after he and his partner found a way to hack into one of most trusted wallet back in 2018 [4:17]
- The difference between public and private key in cryptography and their comparison to the traditional world [6:29]
- Why are banks entering the crypto space to earn a new revenue stream on custody [9:50]
- Why is it difficult for banks to develop a custody infrastructure in-house to manage private keys of their clients [10:45]
- The options available to the bank for custody – (i) develop infrastructure, (ii) third party solution (iii) self managed solution [12:12]
Limitations of traditional cold wallets and benefits of self managed custody solution
- Why should banks not use B2C cold wallet solutions, and what are their limitations (insurance for example) [16:40]
- Differences between hot and cold wallets [20:35]
- The limitations of cold wallets when at some point they need to be connected to the internet [22:11]
- The practical steps for how banks and financial institutions can partner with GK8 to offer a self managed custody solution to their clients [24:37]
- How can clients benefit from staking their assets while their private keys remain completely offline in the cold vault [27:14]
Blockchain education and cryptocurrencies adoption
- The barriers faced by financial institutions today for cryptocurrencies to become mainstream (regulation, custody, insurance,…) [29:54]
- Bitcoin is just one use case of blockchain, and Lior advises everyone interested to pick one use case and start their education from there [32:58]
- Lior summarizes why it’s important for banks to refrain from developing a custody solution and instead trust a third party custody provider like GK8 [34:18]
- The quote of Winston Churchill that Lior lives by [35:41]
